Late Payment Directive

Late Payment Directive

The entire European economy is negatively affected by late payment. To protect European businesses, particularly SMEs, against late payment, the EU adopted Directive 2011/7/EU on combating late payment in commercial transactions in February 2011.

Each year across Europe thousands of small and medium-sized enterprises (SMEs) go bankrupt waiting for their invoices to be paid. Jobs are lost and entrepreneurship is stifled. Late payment causes administrative and financial burdens, which are particularly acute when businesses and customers are in different EU countries. Cross-border trade is inevitably impacted.

For Europe’s valued SMEs, any disruption to cash flow can mean the difference between solvency and bankruptcy. The economic crisis presented numerous difficulties, but for SMEs the challenges presented by late payment have grown disproportionately as credit lines and bank loans become less available.

To protect European businesses, in particular SMEs, against late payment and to improve their competitiveness, Directive 2011/7/EU on combating late payment in commercial transactions was adopted on 16 February 2011 and was due to be integrated into national law by EU countries by 16 March 2013 at the latest. This Directive puts in place strict measures which, when properly implemented by EU countries, will contribute significantly to employment, growth and an improvement in the liquidity of businesses.

Main provisions of the Directive

Public authorities have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.

Enterprises have to pay their invoices within 60 days, unless they expressly agree otherwise and provided it is not grossly unfair.

Automatic entitlement to interest for late payment and €40 minimum as compensation for recovery costs.

Statutory interest of at least 8% above the European Central Bank’s reference rate.

EU countries may continue maintaining or bringing into force laws and regulations which are more favourable to the creditor than the provisions of the Directive.

Interest for Late Payment

Implementation of the Directive into EU country law

Evaluation of the Late Payment Directive

A study was commissioned to gather further information on the implementation of the Directive in all EU countries and to evaluate the initial impact of the transposing legislation. The evaluation aimed to determine whether the needs of creditors in commercial transactions are being adequately addressed and identified factors that are preventing the correct implementation of the Directive, whilst proposing recommendations to rectify any shortcomings.

The results of this study were part of a report on the implementation of this Directive that the European Commission submitted to the European Parliament and the Council.

Report on the implementation of the Late Payment Directive

On 26 August 2016, the Commission adopted a report accompanied by a staff working document on the implementation of the Directive. The results of the aforementioned study, as well as further research, fed into this Report, that has been submitted to the European Parliament and to the Council. The Report assesses the effectiveness, efficiency, coherence, relevance and EU added value of the Directive. It also puts forward recommendations for the Commission and the EU countries, which should fully exploit the benefits of the Directive.

Late Payment in Business-to-Business (B2B) transactions

One of the recommendations from the Directive's implementation report was to identify best practices for more effective application of the Directive in the EU countries. To follow this recommendation, the Commission ordered a study focusing on commercial transactions between enterprises (B2B).

Evidence continues to show that in commercial relations, businesses, and especially SMEs, are reluctant to exercise these rights out of fear of damaging commercial relationships. This applies in particular to claiming interest and compensations when they receive payments late or accepting long payment terms.

In response to this, some EU countries have implemented sets of measures supporting the national laws that transposed the Directive. These measures can be broadly categorised as:

Structural/ legal measures in the form of 'hard' law

Voluntary/ 'soft' measures

This study mapped all these measures across the 28 EU countries. It extrapolated a set of recommendations. These indicate whether the Directive's relevant provisions are still fit for purpose and what could be done to build a stronger 'prompt payment' culture in the business environment.

Late Payment Information Campaign

The Commission organised the Late Payment Information Campaign in all 28 EU countries from October 2012 to November 2014 to increase awareness amongst European stakeholders, in particular SMEs, and amongst public authorities on the rights granted by Directive 2011/7/EU on combating late payment in commercial transactions.